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Economic Survey of Latin America and the Caribbean • 2008-2009
135
Ecuador
1. General trends
Economic growth in Ecuador stood at 6.5% in 2008, significantly higher than the 2.5% posted
in 2007. As in other countries of Latin America and the Caribbean, high prices for export
commodities —in this case, crude oil— led to a sharp rise in fiscal revenue in 2007 and the
first three quarters of 2008, which allowed the government to finance substantially higher
public spending, especially public investment. Economic growth is expected to be only 1%
in 2009, however, mainly because of lower oil prices.
The Constituent Assembly approved a new Constitution,
introducing various significant changes, including
economic ones. The State will have a more prominent role
in economic matters and, more specifically, the central
bank will no longer be independent.
Despite the sharp rise in public revenue, in 2008 the
fiscal situation deteriorated markedly relative to 2007, as
the primary and overall balances of the non-financial public
sector (NFPS) worsened. While the primary balance went,
in GDP terms, from a 4.0% surplus in 2007 to a 0.2%
deficit in 2008, the overall balance declined from a 2.1%
2. surplus to a 1.6% deficit. Fiscal policy is likely to be less
expansionary in 2009, because of the fiscal constraints
the government will face in terms of oil revenue receipts
and financing public spending.
Lastly, the balance-of-payments current account also
deteriorated, with the surplus in GDP terms falling from
3.6% in 2007 to 2.3% in 2008. This was due to a sharp
depreciation in the balance of trade in goods in the fourth
quarter, with rising imports driven by higher consumption
and a fall in petroleum export earnings caused by lower
international oil prices.
Economic policy
(a) Fiscal policy
Public spending continued the upward trend begun in
2007, with total spending by the NFPS rising from 27.4%
to 40.6% of GDP. Although this higher expenditure was
due to a strong rise in gross fixed capital formation by the
State, from 6.9% of GDP in 2007 to 13.5% in 2008, sharp
increases were also posted in current spending, including
wages, purchases of goods and services, transfers and other
expenditure such as the Human Development Bond. In
particular, large amounts were spent on imported petroleum
products, which were sold at fixed prices far below cost.
Fiscal revenue rose from 29.4% of GDP in 2007 to 39%
in 2008. Oil revenue soared from 7.2% to 16.5% of GDP
in the same period, almost exclusively because of higher
international petroleum prices. Non-petroleum revenue also
increased, although to a lesser extent, rising from 20.9% to
21.7% of GDP between 2007 and 2008. In April 2008, the
petroleum funds were eliminated and the balances were
transferred to the “single current account”.
136
With larger increases in spending than in revenue,
non-petroleum revenue in 2008 was insufficient to cover
current spending and, in fact, accounted for only 80.6% of
it. This poses serious policy challenges for 2009, owing to
financing constraints and lower oil prices. In particular, given
the downward rigidity of current spending, the reduction
in oil revenue in the context of the international financial
crisis makes it more likely that an adjustment in fiscal
spending in 2009 will have an especially strong impact on
public investment. From the third to the fourth quarter of
2008, petroleum revenue fell by an amount equivalent to
1.8% of GDP, with a larger decrease expected in 2009. It
is thus very likely that capital formation by the State will
decline sharply in 2009, with the consequent detrimental
effects for economic growth.
From 2007 to 2008, the slight fall in nominal total
public debt, together with a 6.5% rise in GDP, translated
into a decline of the debt-to-GDP ratio from 30.0% to
25.8%. The ratio of internal debt to external debt in nominal
terms also changed, while both fell in GDP terms. External
debt fell from 22.9% of GDP in December 2007 to 18.9%
twelve months later, while internal debt rose from 6.9%
of GDP to 7.1%. Internal debt continued to rise in the
first quarter of 2009. In April 2009, the Latin American
Reserve Fund agreed to extend a US$ 480 million loan to
Ecuador, with three years for repayment of the principal
and a one-year grace period. The government has entered
into negotiations with other international agencies to
obtain loans to meet its 2009 budget.
In November 2008, the government made public a report
on the country’s debt, prepared by the Ecuadoran Integral
Public Credit Audit Commission (CAIC). At the same time,
it decided to declare technical default on the payment of
interest on its 2012 Global Bonds, and in February 2009 on
that of its 2030 Global Bonds. In December 2008, the 2012
bonds and the 2030 bonds each represented a commitment of
US$ 3.24 billion, equivalent to 23.6% of the country’s total
public debt and 32.1% of its external public debt. Lastly,
on 20 April 2009, the government proposed that holders
of these bonds submit bids to trade their bonds for cash
in a modified Dutch auction. The government set a floor
price of 29.5% plus 50 basis points over nominal value.
This did not extend to the third Global Bond, due in 2015.
As a result, in June 2009, the government announced that
92.8% of the 2030 bonds and 81.3% of the 2012 bonds
had been withdrawn from the market.
(b) Monetary policy
Between 2008 and early 2009, benchmark interest
rates in the country’s financial sector fell. Whereas in
April 2008, the maximum rate for corporate loans stood
at 10.9%, by April 2009, it had dropped to 9.3%. The
Economic Commission for Latin America and the Caribbean (CEPAL)
maximum rate for the small and medium-sized enterprise
sector fell from 14.5% to 11.8% in the same period.
Banking sector assets increased until November
2008, when they reached the equivalent of 33.9% of GDP,
up from 32.2% in December 2007. From then until early
2009, they began to decline in nominal terms. Between
November 2008 and March 2009, the cumulative decline
in bank assets was equivalent to 4.5% in dollars. This may
reflect the sharp decline in oil prices and the consequent
reduction in assets to finance the more than US$ 1.5 billion
deficit of the balance-of-payments current account during
the fourth quarter of 2008.
In 2008 and early 2009, the composition of assets also
shifted. In particular, the liquid assets held by open banks
in proportion to total assets has been decreasing since July
2008, especially in terms of deposits abroad. Despite the
fiscal constraints, the banking sector continued to show little
interest in lending to the State; hence, government bonds
represented only 0.5% of the banking sector’s portfolio.
Lastly, starting in November, the decline in asset values began
to affect especially loans to companies in the non-financial
public sector, which declined by 8.3% in nominal terms
—nearly twice as much as that of total assets— between
November 2008 and March 2009. By contrast, growth in
lending to other residents, including consumer credit, was
sluggish, only 0.4% in the same period.
(c) Other policies
As a result of the turmoil stemming from the global
financial crisis, the currencies of several of the country’s
leading trading partners, including the European Union,
Brazil and Colombia, depreciated against the dollar starting
in mid-2008. This, combined with a higher rate of inflation
in Ecuador than in the United States and some trading
partners, translated into a 9.8% effective real exchange
rate appreciation between December 2007 and December
2008. This trend continued for the first three months of
2009, and the effective real exchange rate fell by 1.4%
from December 2008 to March 2009.
Lastly, in response to the deterioration in the current
account since late 2008, the government adopted a series of
policies to restrict imports. The measures introduced in January
2008 included safeguard measures on imports, introduced
initially for one year, to partially mitigate the balance-ofpayments deficit expected for 2009, and Resolution 467 of
the Foreign Trade and Investment Council of Ecuador, on
the distribution of import quotas. This provision increased
ad valorem tariffs on some sub-items and set specific tariffs
for others, especially textiles, footwear and two sub-items
in the ceramics sector. Quantitative restrictions were also
adopted on imports of a series of products by assigning
importer and sub-item quotas.
Economic Survey of Latin America and the Caribbean • 2008-2009
3. 137
The main variables
(a) Economic activity
The economy grew by 6.5% in 2008, mainly on the
strength of the construction sector (13.8%), in addition to
services, manufacturing and government services. On the
demand side, private consumption and gross fixed capital
formation were the most powerful economic engines in
2008, in particular because of the strong increase in public
investment. While private consumption grew by 7%, gross
fixed capital formation increased by 16.1%. The reason
for this increase in GDP was the strong fiscal stimulus
the economy received thanks to the recovery in fiscal
receipts, especially as a result of higher oil prices.
It is useful to examine the performance in 2008 of
the oil sector, which accounts for 18.6% of the country’s
GDP. Although the volume of oil produced declined
by 1%, the performance of the State-owned company
PETROECUADOR (including Petroamazonas, which
operates block 15) should be distinguished from that of
private companies: output by the former increased by
3.4%, while that of the private companies fell by 5.5%.
In particular, extraction by private companies declined
steadily starting in April 2008, possibly owing to the
lack of investment in a context in which the Ecuadorian
government is attempting to increase its share of oil
revenues. Also, PETROECUCADOR embarked on an
investment plan to increase its oil-extraction capacity in
2008. The 2009 investment budget, however, has been
cut because of fiscal constraints.
Economic activity is expected to decline sharply in
2009, within a context of fiscal-management and balanceof-payment constraints and the general sluggishness of the
global economy owing to the international financial crisis;
this is likely to result in low economic growth for Ecuador.
Specifically, the buoyancy seen in the construction sector
in 2008 is unlikely to continue, given that significantly
lower public investment and internal demand and tighter
credit could reduce demand for housing.
(b) Prices, wages and employment
Inflation stood at 8.8% in 2008, as measured by the
variation in the consumer price index from December
2007 to December 2008. Inflation rose in early 2008 and
peaked in August before gradually falling to 5.4% in May
2009. During the first five months of 2009, cumulative
inflation stood at 2.9%. Although the international crisis
led to a downward trend for many products in this period,
the restrictive trade measures imposed by the government
in early 2009 could explain part of the inertial inflation
in sectors such as clothing and footwear.
Labour force participation in urban areas decreased from
61.2% to 60.1%, while the fall in the employment rate was
smaller (from 56.8% to 56.0%); hence, the unemployment
rate dropped moderately (from 7.4% to 6.9%). The real
minimum wage rose by 8.5% over the year.
(c) The external sector
The current account surplus was US$ 1.194 billion
in 2008, equivalent to 2.3% of GDP, down from 3.6% of
GDP in 2007. However, a US$ 1.526 billion deficit was
posted in the fourth quarter of 2008, equivalent to 2.9%
of GDP. The balance of trade in goods was particularly
favourable, as a result of high oil prices until the third
quarter. The income balance also improved during 2008;
the deficit fell from 4.0% of GDP in 2007 to 2.5% in
2008, especially as a result of declining income from
direct foreign investment. Remittances from Ecuadorian
emigrants declined in 2008. The United States accounts
for 46.8% of all remittances, Spain 41%, and Italy in a
distant third place, with 7.5%. Because of the crisis in
those countries, remittances fell by 8.6% on a nominal
basis, while in GDP terms they declined from 6.7% to
5.3% between 2007 and 2008. The sharpest decline was in
remittances from the United States. Given that economic
problems will persist in the United States and Spain in
2009, remittances from Ecuadorian emigrants are expected
to remain stagnant and to continue the trend seen since
the second quarter of 2008.
Regarding the balance-of-payments financial
account, the net outflow of hard currency from Ecuador
was equivalent to 0.9% of GDP in 2008. Net FDI rose
during the year, but from a very low level, and reached
1.8% of GDP. The branch of economic activity that
received most FDI was mining and quarrying. Along
with the acquisition of foreign assets like deposits
abroad and, to a lesser extent, other assets outflows
occurred as both the public and private-sectors paid
down their loans. Hence, the net outflow of foreign
currency, in the category “other investments,” which
comprises the items mentioned above, was 3.1% of
GDP, outstripping the higher flows of FDI received
during the year.
138
Economic Commission for Latin America and the Caribbean (CEPAL)
Table 1
ECUADOR: MAIN ECONOMIC INDICATORS
2000
2001
2002
2003
2004
2005
2006
2007
2008 a
Annual growth rates b
Gross domestic product
Per capita gross domestic product
Gross domestic product, by sector
Agriculture, livestock, hunting, forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water
Construction
Wholesale and retail commerce, restaurants
and hotels
Transport, storage and communications
Financial institutions, insurance, real estate and
business services
Community, social and personal services
Gross domestic product, by type of expenditure
Consumption
General government
Private
Gross domestic fixed investment
Exports (goods and services)
Imports (goods and services)
Investment and saving c
Gross domestic investment
National saving
External saving
Balance of payments
Current account balance
Goods balance
Exports, f.o.b.
Imports, f.o.b.
Services trade balance
Income balance
Net current transfers
Capital and financial balance d
Net foreign direct investment
Other capital movements
Overall balance
Variation in reserve assets e
Other financing
Other external-sector indicators
Real effective exchange rate
(index: 2000=100) f
Terms of trade for goods
(index: 2000=100)
Net resource transfer (millions of dollars)
Total gross external debt (millions of dollars)
Employment
Labour force participation rate g
Unemployment rate h
Visible underemployment rate i
Prices
Variation in consumer prices
(December-December)
Variation in producer prices
(December-December)
Variation in nominal exchange rate
(annual average) j l
Variation in minimum urban wage
Nominal deposit rate k
Nominal lending rate k
2.8
1.3
5.3
3.8
4.2
2.8
3.6
2.1
8.0
6.5
6.0
4.5
3.9
2.4
2.5
1.0
6.5
5.0
-0.1
8.0
-32.4
2.6
18.3
3.6
1.1
11.6
0.6
19.7
5.4
-2.5
6.3
8.2
20.0
5.6
6.0
3.7
1.2
-0.7
1.9
25.3
-10.3
-8.7
4.0
7.8
1.1
20.0
1.3
7.3
5.1
1.0
1.0
0.5
3.8
4.1
-4.8
9.3
15.5
0.1
5.4
0.0
11.3
12.7
13.8
3.8
7.7
4.8
1.9
2.2
1.2
3.5
4.3
3.9
4.8
5.3
8.9
4.9
7.2
3.4
5.7
6.5
5.4
2.3
5.8
3.6
0.4
7.9
-0.4
2.7
2.3
6.2
2.7
9.0
2.5
7.3
3.6
5.3
5.3
7.6
14.0
3.9
4.7
3.8
12.1
-1.0
15.8
5.8
-0.6
6.8
23.5
-0.8
24.8
6.3
4.3
6.6
18.9
-0.8
16.7
4.7
1.4
5.2
-0.2
9.6
-3.9
4.5
3.6
4.7
4.9
15.9
11.1
6.9
3.5
7.3
10.9
9.0
13.7
5.3
3.7
5.5
3.8
8.9
9.3
3.8
6.1
3.5
2.5
2.2
7.3
7.5
11.6
7.0
16.1
3.3
10.2
23.4
27.3
-3.9
24.1
27.7
-3.6
25.6
27.8
-2.3
Percentages of GDP
20.1
25.9
-5.8
24.3
21.3
2.9
26.5
21.3
5.1
21.5
20.0
1.5
23.4
21.7
1.7
23.8
24.7
-0.9
Millions of dollars
921
1 395
5 137
3 743
-420
-1 405
1 352
-6 618
720
-7 338
-5 697
-307
6 004
-624
-356
4 821
5 178
-572
-1 335
1 639
394
1 330
-936
-230
106
124
-1 271
-902
5 258
6 160
-716
-1 305
1 652
1 144
1 275
-132
-127
66
62
-422
80
6 446
6 366
-744
-1 528
1 769
558
872
-313
136
-152
17
-542
284
7 968
7 684
-954
-1 902
2 030
823
837
-14
281
-277
-4
348
758
10 468
9 709
-1 130
-1 942
2 661
318
493
-175
666
-710
43
1 618
1 768
13 176
11 408
-1 305
-1 950
3 104
-1 748
271
-2 019
-131
124
7
1 650
1 823
14 870
13 047
-1 371
-2 047
3 246
-263
193
-457
1 387
-1 497
111
1 194
1 361
19 147
17 786
-1 548
-1 607
2 989
-246
974
-1 220
948
-952
4
100.0
70.7
61.8
60.3
61.6
64.8
65.4
68.2
68.8
100.0
-2 020
1 180
84.6
-817
1 074
86.8
-100
1 008
89.8
-953
1 160
91.5
-1 084
1 437
102.4
-1 580
2 147
109.9
-3 691
2 023
113.0
-2 200
3 521
124.0
-1 850
4 473
59.1
8.1
6.3
61.2
7.4
10.8
60.1
6.9
9.9
Average annual rates
57.3
14.1
16.1
63.1
10.4
12.6
58.3
8.6
10.2
58.2
9.8
9.8
59.1
9.7
8.1
59.5
8.5
7.3
Annual percentages
91.0
22.4
9.4
6.1
1.9
3.1
2.9
3.3
8.8
64.9
-5.6
17.7
4.5
4.3
21.6
7.2
18.2
-28.3
112.0
-3.6
8.2
15.2
0.0
11.5
6.6
15.5
0.0
0.9
5.1
14.1
0.0
6.1
5.3
12.6
0.0
2.4
4.0
10.2
0.0
3.0
3.8
8.7
0.0
3.3
4.4
8.9
0.0
3.9
5.3
10.1
0.0
8.5
5.5
9.8
Economic Survey of Latin America and the Caribbean • 2008-2009
139
Table 1 (concluded)
2000
2001
2002
2003
2004
2005
2006
2007
2008 a
Percentages of GDP
Central government
Total income
Tax income
Total expenditure
Current expenditure
Interest
Capital expenditure
Primary balance
Overall balance
20.4
10.2
20.3
16.1
6.3
4.1
6.5
0.1
18.1
11.2
19.1
12.4
4.4
6.8
3.4
-1.0
18.4
11.0
19.1
14.2
3.3
4.9
2.6
-0.7
16.7
9.7
17.0
12.4
2.9
4.6
2.5
-0.4
15.9
9.7
16.8
12.6
2.5
4.3
1.5
-1.0
16.3
10.1
16.8
12.7
2.3
4.1
1.8
-0.5
16.5
10.2
16.7
12.7
2.3
4.0
2.0
-0.2
18.5
10.4
18.7
12.9
2.0
5.7
1.9
-0.1
26.2
12.5
27.4
16.1
1.5
11.3
0.3
-1.2
Public-sector debt
Domestic l
External
81.7
17.8
63.9
62.7
13.2
49.5
54.3
11.1
43.2
49.2
10.5
38.6
43.7
10.7
33.0
38.6
9.9
28.7
32.0
7.8
24.1
30.0
7.1
22.9
25.8
6.9
18.9
Money and credit m
Domestic credit
To the public sector
To the private sector
Liquidity (M2)
34.7
3.6
31.1
25.6
26.5
-0.1
26.6
24.2
20.4
-0.3
20.7
23.4
17.3
-2.5
19.8
20.3
16.6
-4.5
21.1
21.7
16.8
-6.1
22.8
23.0
17.1
-6.7
23.9
24.0
18.0
-6.9
24.9
25.9
18.0
-9.2
27.2
27.5
Source:Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
a Preliminary figures.
b Based on figures in local currency at constant 2000 prices.
c Based on figures in local currency expressed in dollars at current prices.
d Includes errors and omissions.
e A minus sign (-) denotes an increase in reserves.
f Annual average, weighted by the value of goods exports and imports.
g Economically active population as a percentage of the working-age population, three cities.
h Percentage of the economically active population, urban total. Up to 2003, the figures relate to Cuenca, Guayaquil and Quito. Includes hidden unemployment.
i Percentage of the economically active population, three cities.
j In January 2000, the country adopted the United States dollar as its official currency.
k Reference rate in dollars, monthly average.
l Refers to the central government.
mThe monetary figures are end-of-year stocks.
The value of Ecuadorian exports rose by 29.3% in
2008, up from the 12.7% growth posted in 2007. Some
80% of this increase stemmed from petroleum-related
sales, especially those of crude oil (75%). The value of
exports increased by 42.3%, owing mainly to the rise in
international oil prices from an average of US$ 59.9 per
barrel in 2007 to US$ 83 in 2008. The quantity of crude
oil exported rose by only 2.6% from 2007 to 2008. The
value of exports of petroleum products increased by
22.7%, but solely because of higher prices, since the
volume exported declined slightly. Non-petroleum exports
were up 14.1% in value terms, accounting for 20% of the
increase in exports. The most noteworthy of the products
contributing to exports were bananas, which were up 25.9%
and accounted for about 10% of the increase in exports,
and tinned fish and vegetable oils, which rose 21.5% and
57.5%, respectively. In the first three months of 2009, the
value of exports was down 69.3%, mainly because of the
decrease in oil exports (67.2%), although the value of
non-petroleum exports also declined by 4.5%.
The value of imports rose by 35.1% in 2008, driven
by higher international prices for several products, such
as intermediate goods, and higher domestic demand. Raw
materials imports accounted for 38.4% of this increase,
while an additional 26.2% stemmed from capital goods
purchases. As a result of the lower prices for imported
goods and, probably, the economic slowdown starting in
the last quarter of 2008, imports decreased by 1.7% in the
first few months of 2009, almost entirely because of the
3.8% decrease in the value of raw materials imports.
140
Economic Commission for Latin America and the Caribbean (CEPAL)
Table 2
ECUADOR: MAIN QUARTERLY INDICATORS
2008 a
2007
2009 a
I
II
III
IV
I
II
III
IV
I
II
1.6
1.1
1.4
5.8
6.5
8.3
8.0
3.4
1.2
...
Goods exports, f.o.b. (millions of dollars)
Goods imports, c.i.f. (millions of dollars)
Gross international reserves (millions of dollars)
2 878
3 094
2 182
3 353
3 161
3 204
3 826
3 556
3 611
4 264
4 083
3 521
4 623
3 747
4 144
5 497
4 508
6 103
5 178
5 374
6 477
3 213
5 058
4 473
2 623
3 669
3 244
...
...
2 675
Real effective exchange rate (index: 2000=100) c
66.1
68.1
68.5
70.0
70.7
70.8
69.4
64.4
62.7
8.8
7.4
7.1
6.1
6.9
6.4
7.1
7.3
8.6
...
1.5
2.2
2.6
3.3
6.6
9.7
10.0
8.8
7.4
4.5
Gross domestic product (variation from same
quarter of preceding year) b
Unemployment rate
Consumer prices
(12-month percentage variation)
Average nominal exchange rate
(sucres per dollar) e
25 000 25 000 25 000 25 000
25 000 25 000 25 000 25 000
63.5 d
25 000 25 000
Nominal interest rates (annualized percentages)
Deposit rate f
Lending rate f
Interbank interest rate g
5.1
9.4
2.4
5.1
9.8
2.5
5.4
10.7
2.5
5.7
10.7
2.5
5.9
10.6
1.7
5.8
10.0
1.1
5.3
9.4
1.0
5.1
9.2
0.6
5.2
9.2
0.9
5.5
9.2
0.7
Sovereign bond spread (basis points) h
659
711
616
614
662
596
1 001
4 731
3 568
3 003
Stock price index (national index
to end of period, 31 December 2000=100)
369
354
342
329
353
347
341
349
342
302
Domestic credit (variation from same
quarter of preceding year)
26.6
16.2
12.5
15.0
2.1
-5.4
-2.9
14.8
16.1
30.2 i
Non-performing loans as a percentage of
total credit
10.5
10.0
10.1
9.2
9.2
8.4
7.9
7.7
8.7
9.2 d
Source:Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
a Preliminary figures.
b Based on figures in local currency at constant 2000 prices.
c Quarterly average, weighted by the value of goods exports and imports.
d Data to May.
e In January 2000, the country adopted the United States dollar as its official currency.
f Reference rate in dollars, monthly average.
g Interbank market, weighted average.
h Measured by JP Morgan’s EMBI+ index.
i Data to April.